ClassPass is now giving money to fitness studios to expand

The thing Pop Physique founder Jennifer Williams remembers most vividly about ClassPass co-founders Payal Kadakia and Mary Biggins’ recent visit to her Silver Lake studio is how quickly it was over.

“We had a deal signed within 45 minutes,” she says. “It was very exciting.”

Kadakia and Biggins had arrived to ask Pop Physique, which currently has more than 20 locations across California, if ClassPass could help the brand open its first location in New York City, where a small group of boutique fitness studios were signing on to be a part of their new “Studio Empowerment Program.”

While it’s hard to pick up a kettlebell these days without hearing the name of the industry-disrupting company whispered in conversation, few know about this aspect—that ClassPass has moved beyond just providing discounted memberships for fitness enthusiasts looking for sweaty access to boutique studios that otherwise charge $34 a pop, and is now helping growing fitness brands finance expansions. Pop Physique is one such company, along with Row House, Y7, and New York Pilates.

It’s a program that’s slowly generating buzz in the industry, with some seeing it as an incredible opportunity for smart studio owners with limited cash, and others fearing that it’s just another example of ClassPass tightening its grip on the market, leading to the devaluation of the boutique workout class and making it harder for brands to make ends meet in the long run.

“Our mission is to utilize our internal resources…to help studio owners,” says Michael Wolf, ClassPass’ global head of operations and partnerships. “We’re trying to support the entire ecosystem.”

Wolf explains that the Studio Empowerment Program provides studios with a sort of “pre-payment” for class spots to come, which basically functions like a no-interest loan. It can be between $25,000 and $250,000, depending on a studio’s needs, and once the new location is open, the studio pays it back by guaranteeing a certain number of spots in their classes to ClassPass users, and taking a smaller amount of money for those spots until the loan is paid off.

Wolf emphasizes that the loan is just one part of the program built to support studios, which also includes access to capital via a partnership with Funding Circle, summits that bring the industry together, business seminars, and even additional logistical help in getting the location up and running, if it’s needed.

“It was very appealing to us because it provided a bit more support,” Pop Physique’s Williams says. “We thought ‘this is a way we could absolutely do New York right now.'”

“They’re just paying you out for classes in advance, no interest, there’s no equity play or anything like that,” adds Debra Strougo Frohlich, co-founder of Row House, which recently opened its third location, on 23rd Street in Chelsea, with ClassPass’ help. “From our perspective, that was kind of a no-brainer, because for us, we’re privately funded. When you open new studios, it’s just a cash flow scenario that we have to solve.”

CityRow founder Helaine Knapp agreed that when ClassPass approached her about providing cash for an expansion, it sounded like a dream scenario, but she ultimately turned down the opportunity. Knapp says ClassPass targeted CityRow for the program because the studio places a strict limit on the number of ClassPass users it allows, and many with memberships find the spots sell out too quickly for them to ever get in.

“We started talking, but ultimately it didn’t make sense for us, because currently we only make a very small portion of our total inventory available to ClassPass, and even that inventory is restricted to off-peak times,” she explains. “We built a product that costs $32, so committing to something that could ultimately cost us a full-paying, long-term client seemed really scary to us.” Knapp is now opening her Upper East Side studio on her own steam in January.

The scenario is indicative of an important point: While ClassPass bills the program as built to “support studios” (and some may find that is a result), it’s a business in the end, and the company needs quality class inventory in order to sell memberships. It’s a fact that some studio owners say ClassPass is using to their advantage.

“Their business only works to the degree that there are strong studios,” says Frohlich, “and that’s essentially what we are to them, a really strong brand that they obviously need to a certain degree.”

Williams relayed a similar sentiment. “‘What do you think about ClassPass? Are they destroying your business?’ All kinds of people ask us that every day—it’s a common question,” she says. “They are a disruptor to the fitness industry, and I think it’s a good thing to partner with them. Why don’t we use the fact that they can help us? They need us.” Who needs who, of course, is what makes it all so interesting. —Lisa Elaine Held